<p>
  An option is a type of financial derivative. Derivatives are financial contracts and its value is dependent on or derived from underlying assets. The underlying assets could be stocks, indices, commodities, currencies, exchange rates, or the interest rate. When you trade options contracts, it can help you generate profits by betting on the future value or just the moving direction of the underlying assets. So, their value is derived from that of the underlying asset. This is why options are called derivatives.
</p>
<p>
  Puts and calls are two basic classes of options. Call options give the buyer the right to buy the underlying asset at a certain price while put options endow the buyer the rights to sell them. For strict definition, a call/put option is a standardized contract that gives the buyer the right to buy/sell an agreed quantity n of underlying asset S, at a predetermined price K at maturity T. The seller of a call/put option is obliged to sell/buy the underlying assets if the buyer exercises the option.
</p>
<p>
  First, we give the building blocks of an option contract and will discuss them further.
</p>
<table class="table qc-table">
<tbody>
<tr>
<td style="text-align: left;"><strong>Style</strong></td>
<td style="text-align: left;"><strong>American Option:</strong> the holder of an option has the right to exercise his option at any time before the expiration date
<strong>European Option:</strong> an option which can only be exercised on its expiration date</td>
</tr>
<tr>
<td style="text-align: left;"><b>Type</b></td>
<td style="text-align: left;">Call option, Put option</td>
</tr>
<tr>
<td style="text-align: left;"><strong>Underlying Asset</strong></td>
<td>The security on which the option is bound. The underlying could be stocks(stock option), stock indices(index option), exchange rate(Foreign exchange option) or even futures(Futures Options).
Note: The options in the tutorial refer to the stock options.</td>
</tr>
<tr>
<td style="text-align: left;"><strong>Premium</strong></td>
<td style="text-align: left;">The price of the option. (Premiums are quoted on a per share basis).
The option premium depends on the strike price, volatility of the underlying, as well as the time remaining to expiration.</td>
</tr>
<tr>
<td style="text-align: left;"><strong>Strike Price</strong></td>
<td>The specified price at which the stock can be bought or sold when the option is exercised.</td>
</tr>
<tr>
<td style="text-align: left;"><strong>Expiration Date</strong></td>
<td>The last day that an options contract is valid. All options expire after a certain period of time. The right to exercise the option will no longer exist once the stock option expires.</td>
</tr>
<tr>
<td style="text-align: left;"><b>Participants</b></td>
<td style="text-align: left;"><strong>Holder:</strong> People who buy the options(have long positions)
<strong>Writer:</strong> People who sell the options(have short positions)</td>
</tr>
</tbody>
</table>
